Reviewing Board Holds Massachusetts Law Requires Funding Mechanisms to Remain in Place to Ensure Payment of Workers’ Compensation Benefits Even for Employees of “Defunct Self-Insurers”

In an appeal involving a defunct workers’ compensation self-insurer, the Massachusetts Department of Industrial Accidents Reviewing Board held that a settlement agreement reached between a re-insurer and a bond holder was contrary to statute and invalid. Partly, the Board held the agreement was invalid because there was no notice to the Department, or to the workers’ compensation claimant, the widow of a deceased employee. In this case and the previous appeals, the claimant sought payment of her survivor benefits, which had ceased when the self-insurer’s bond was exhausted. The Board vacated the decision that had held the Workers’ Compensation Trust Fund responsible for paying the benefits and mandated the insurer pay all of the benefits directly to the claimant.

The facts of this case indicate that the employee began working for the employer, Polaroid Camera, in 1959. In 1987, he contracted asbestosis from work-related asbestos exposure. He worked until January 1989, when the asbestosis incapacitated him. He was eventually awarded section 34 benefits from January 1989 and continuing.

The self-insurer paid those benefits to exhaustion and then paid section 34A benefits. In 1998, the employee passed away as a result of his injury. The self-insurer voluntarily began to pay section 31 survivor benefits to the widowed claimant.

According to G.L. c. 152 section 25A(2)(b) and (c), the self-insurer secured a bond from XL Reinsurance, purchased reinsurance, and then denied a request for reimbursement by XL, according to the reinsurance agreement. XL brought a lawsuit against the re-insurer in order to resolve coverage issues under the bond and insurance concerning the claim for benefits. A settlement agreement was made, and the re-insurer agreed to reimburse XL for 70% of the documented benefits.

Then, when the self-insurer’s bond with XL was exhausted, in around May 2013, XL stopped paying the employee’s widow. She filed her claim against the re-insurer, seeking her section 31 survivor’s benefits. The WCTF was joined for hearing, and ultimately the judge ordered the WCTF to pay the claimant her benefits. In stating his opinion, the judge made clear that when the re-insurer stopped reimbursing XL, since XL was no longer making benefits, the employer was rendered uninsured. This violated Chapter 152, and the WCTF was then obligated to pay the widow benefits. Therefore, the judge held that the WCTF was entitled to be reimbursed by the re-insurer. And, since the WCTF was not a party to the settlement agreement between XL and the re-insurer, they were not limited by the agreement.

On appeal, the WCTF argued that the judge should not have ordered it to pay the claimant’s benefits. Instead, the re-insurer should pay those benefits directly to the claimant, at a rate of 100% of the benefits due. The re-insurer then argued that the judge erred in finding that the insurer’s agreement with XL went against the statute. The judge ordered the re-insurer to reimburse the WCTF for 100% of the benefits paid to the claimant, but, according to the re-insurer, the judge should have ordered it to pay 70% of those payments, according to the agreement with XL.

The Board stated that the judge did err in ordering the WCTF to pay the employee’s benefits, citing case law. Instead, the Board stated the order requiring the WCTF to pay the employee’s benefits would be vacated, and the re-insurer would be ordered to pay those benefits.

The Board also noted that both the claimant and the WCTF contended that it was not an error for the judge to find the settlement agreement between XL and the re-insurer contrary to statute and unenforceable. In fact, injured employees of defunct self-insurers must be protected. The Board stated the rule that the department must be involved when a reinsurance arrangement is to be modified or compromised, since the law depends on having mechanisms in place so that injured workers receive payment of workers’ compensation benefits. In concluding, the court stated the re-insurer must pay the claimant all of her benefits, rather than 70%.

At Pulgini & Norton, an experienced Boston workers’ compensation attorney can help you by providing legal guidance and effective advocacy on behalf of your right to compensation after a work-related injury. We offer a free, confidential consultation with a skilled workers’ compensation lawyer. Contact our office today to discuss your claim at (781) 843-2200 or contact us online.